The Arizona Court of Appeals recently upheld a lower court ruling that greatly limits the application of Arizona’s Prompt Pay Act. In RSP Architects Ltd. v. Five Star Development Resort Communities, LLC., 665 Ariz. Adv. Rep. 28 (Az App. 2013) the Arizona Court of Appeals ruled that the protections afforded by Arizona’s Prompt Pay Act only apply to construction professionals licensed by the Arizona Registrar of Contractors. The Arizona Court of Appeals explicitly found that the Prompt Pay Act does not apply to design professionals, architects and engineers, when they are performing normal architectural and engineering services.
RSP Architects was retained by Five Star Development, the owner, as the project architect to provide the design concept, construction documents, and construction administration for a development known as the Palmeraise. For its services RSP Architects was to receive approximately $3,000,000.00. Prior to completion of the project RSP Architects ceased to provide service and submitted a final invoice for its services. Five Star Development never objected to any of the line items on the invoice nor the amount sought by RSP Architects in the invoice.
RSP Architects claimed that pursuant to Arizona’s Prompt Pay Act, A.R.S. § 32-1129 et seq, Five Star Development had fourteen (14) days to issue a written objection to the invoice or else it was deemed approved and certified. Once approved and certified, the owner has seven (7) days to pay the invoice. A.R.S. § 32-1129.01(A). Five Star Development did not timely object to the invoice so RSP Architects claimed that pursuant to the Prompt Pay Act, Five Star Development had no defense for its claim that RSP Architects was owed the full amount of the invoice.
In its analysis the Arizona Court of Appeals went through the legislative history of the Prompt Pay Act as well as other construction related statutes such as the anti-indemnity statute. In doing so, the court found that the intent of the legislature was to not include design professionals such as architects or engineers. The drafters of the legislature intended that the Prompt Pay Act would only apply to construction professionals licensed by the Arizona Registrar of Contractors. The only exception to this is when architects and engineers are performing services that are construction services normally performed by construction professionals. This, however, was not the case for RSP Architects as the construction administration services it contracted to perform are services performed normally by architects.
What this means for your company
Unless your company retains an architect or engineer to do the work that is normally only performed by a licensed contractor the Prompt Pay Act with its strict deadlines in responding to invoices does not apply. In other words, without specific provisions stating otherwise in the contract with your design professional, there is no longer the rush to review and object to a design professional’s invoice within fourteen (14) days of receipt for fear that the invoice will be deemed approved and certified. This, however, does not mean that your company can now indefinitely delay reviewing and paying the invoices submitted by architects and/or engineers. In the future, expect to see design professionals attempt to incorporate into their services contracts terms and provisions reinstating the Prompt Pay protections which they have lost with the RSP Architects ruling.